Thursday, December 18, 2008
People who are acquainted with Macro Man, either personally or virtually, will know that he is very rarely lost for words. This morning, however, he has reached that milestone, as he's watched prices flicker on his screen in slack-jawed silence.
Policymakers often reference a desire to avoid "excessive volatility" and the proper functioning of markets. Suffice to say that that we are now firmly in the presence of the former, with an utter absence of the latter. Regardless of your market view, right or wrong, you want to have a market in which to transact. The past couple of weeks, and the past couple of days in particular, has seen complete implosion of the market's ability to reflect transaction flows and fundamentals.
This morning, for example, the German ifo survey printed a lower-than-expected 82.6, it's worst reading since...err...ever. Regardless of what you think about the dollar, it would seem to be an excessive response for EUR/USD to rally 3 big figures in the ensuing hour.
Indeed, while the dollar has been the object of focus, this has probably been more of a euro mvoe this month than a dollar move. Indeed, the dollar has barely budged against the GBP this month. The chart of EUR/GBP is truly awesome, in the sense of awe-inspiring. Meanwhile, in a related note, Parliament has officially changed the name of the GBP to the Great Britain Peso.
Remarkable, given that the Noughties have been the "Decade of Dollar Decline", sterling is now weaker on a real effective exchange rate (REER) basis than the buck. As recently as July, sterling's REER had outperformed the dollar this decade by 20%.
That the euro has gone uber-bid against no5t only the dollar and sterling, but also Eastern Europe and the Scandis offers some suggestion that this month's fireworks are less of a dollar move than a euro move. Just what the world's largest exporter needs, especially as ancillary evidence of collapsing trade volumes continues to mount!
Indeed, as of this morning's trade, the euro's REER has probably reached a post-Bretton Woods high. Normally, this, combined with a swift return of European inflation back to target, might suggest to the ECB that there is perhaps a bit more room to open the monetary taps. Then again, given that ECB board member Juergen Stark is already talking about the need to revert to a restrictive stance....perhaps not.
Maybe the market would be somewhat less disjointed if chaps like Herr Stark were lost for words a bit more often....